Eurozone ‘breaks down’ as France and Germany falter

The pressure is on European Central Bank president Mario Draghi to do more to kick-start the eurozone

Growth in the eurozone has “broken down” after figures today revealed a disastrous performance from the single currency bloc’s chief economic engines, France and Germany, between April and June.

French finance minister Michael Sapin slashed the government’s forecast for growth in half to just 0.5% after the French economy stagnated for the second quarter in a row.

Germany fared even worse at its economy shrank for the first time since the end of 2012, losing 0.2%.

Sapin said “growth has broken down, in Europe and in France” following the data, which send a worrying signal over recovery prospects for the UK’s biggest trading partner.

Growth across the overall single currency bloc ground to a halt in the second quarter, worse than the modest 0.1% advance expected and raising fears of a triple-dip recession.

The lack of growth, exacerbated by concerns over the Ukraine crisis as well as a mild German winter which pulled forward construction output from the second quarter to the first, increases the pressure on European Central Bank president Mario Draghi to do more to kick-start the eurozone.

The ECB is battling against the threat of deflation but remains the only major central bank to not have launched any form of money printing, although Draghi has unveiled a Funding for Lending style scheme to boost credit.

In June the central bank made the historic decision to move its deposit rate into negative territory, effectively charging banks to park reserves at the ECB, as well as lowering its benchmark rate to 0.15%.

Markit chief economist Chris Williamson said: “Stalling economic growth raises concerns that the euro area is sliding back into a triple-dip recession. Many, including the ECB, point to survey data suggesting such fears are overplayed, and that growth will revive as previously announced stimulus takes effect.

“But the weakness of economic growth will certainly fuel louder calls for the ECB to do more to reinvigorate growth across the single currency area.”

ING Bank economist Peter Vanden Houte said: “The bottom line is that the ECB will have to maintain an extremely accommodative monetary policy. The bank will likely be pressured to undertake additional action if some of the downside risks materialise.”

France also revealed that its deficit would be higher than the 3.8% previously forecast this year.